Tata Sons' Rs 1,500 crore GST demand dismissed in Docomo settlement case

The case originated in 2019, when the Directorate General of GST Intelligence (DGGI) imposed an 18 per cent GST on the $1.27 billion paid by Tata Sons to Docomo in 2017

In a significant development, the adjudicating authority of the Goods and Services Tax (GST) department has dismissed a GST demand exceeding Rs 1,500 crore on Tata Sons, related to a settlement deal with the Japanese company Docomo, according to a report by the Economic Times.

Officials involved in the matter said the order could serve as a precedent for other companies engaged in arbitration. They added that the GST department still has the option to challenge the decision in the High Court.

GST demand on Tata’s settlement payment

The case began in 2019, when the Directorate General of GST Intelligence (DGGI) imposed an 18 per cent GST on the $1.27 billion paid by Tata Sons to Docomo in 2017. The payment was made to settle a dispute involving Tata Teleservices.

 

The DGGI argued that since the payment was made on behalf of Tata Teleservices, it should be considered a loan from Tata Sons to the group company. As a result, the DGGI claimed that the payment fell under the purview of an 18 per cent GST.

The DGGI had levied the GST based on Schedule II of the Central Goods and Services Tax (CGST) Act, which classifies the payment of loans as a service. A senior GST official had said, “Tata Sons, being the holding company, is liable to pay the 18 per cent GST on behalf of Tata Teleservices.”

Tata Sons' petition in Bombay High Court

In November 2022, Tata Sons filed a writ petition with the Bombay High Court, citing two circulars issued by the Central Board of Indirect Taxes and Customs (CBIC) in August 2022 and February 2023. These circulars suggested that no GST could be levied on liquidated damages.

Tata Sons argued in court that the payment to Docomo was made on behalf of Tata Teleservices and was not for services provided by Docomo. “The amount was paid as part of an arbitration settlement, not for services,” the company stated. It also claimed that the DGGI was interpreting the situation in a very technical manner.

Despite Tata Sons' arguments, the Bombay High Court allowed the GST department to issue a show-cause notice in 2023. Tata Sons then challenged the notice before the adjudicating authority.

Officials said the authority’s ruling was based on the company’s arguments. “The authority has taken Tata Sons’ position into account while delivering its decision,” an official was quoted as saying, adding that the order could influence other similar cases.

How did the dispute originate?

NTT Docomo acquired a 26.5 per cent stake in Tata Teleservices in 2009. The two parties had agreed that the Japanese firm could exit the venture at a pre-determined minimum price, which would be at least half of its original investment. Docomo exercised this exit option in 2015 due to Tata Teleservices’ financial difficulties.

However, the Reserve Bank of India (RBI) insisted that any exit would have to take place at fair market value, following a rule that was amended in 2013. Tata Sons, then led by the late Cyrus Mistry, declined to pay the pre-agreed sum, citing the RBI’s rule change. This led Docomo to pursue international arbitration.

In 2017, Tata Sons paid $1.27 billion to Docomo, the amount awarded by an international arbitration tribunal, to settle the dispute over the Japanese firm’s stake in Tata Teleservices.